Tuesday, June 12, 2012

Thailand’s Rise After The Flood

The first quarter saw the unexpected increase of the baht’s value and the expansion of Thailand’s economy as factories returned to work after the previous year’s floods. The GDP grew by 0.3 percent in the three months since March of last year since contracting an 8.9 percent increase during the quarter beforehand. Many estimates believed there would be a decline of half a percent instead of an increase.

This is a pleasant surprise considering many economic analysts doubted the country will recover fast after the flood last year. Others estimated that it would take half a decade before Thailand could ever make new investors look their way.

The Bank of Thailand has said that there will not be further rate cuts this month because recovery is proceeding beyond expectations, even with outside risks to Thailand’s growth such as increased oil prices. Output from the country’s manufacturers has been boosted since the disruptions caused by the floods, and Honda Motor Co.’s factory will return to running at full capacity on March 31.

Despite the SET Index’s drop of a full percent, the baht had a half percent increase against the US dollar by noon.

Growth for 2012 has been predicted to be six percent, and once Thailand’s economic recovery gains strength, it will be prepared to increase interest rates again.

Unfortunately, Greece’s political troubles may lead to further problems with Europe’s own debt crisis, which could have an impact on Asian nations. This is just one more challenge on top of China’s growth slowing and the U.S. recovery not proceeding quite as well as desired.

Less demand from Europe for Thailand and Singapore exports is an issue since these countries rely on such exports for a large portions of their gross domestic product, but these exports will get better as more companies recover from the floods. As the automotive and electronics sectors go back to full capacity, growth will increase and gradually pick up speed as we approach the next quarters.

Mild Recovery

Arkhom Termpittayapaisith, who is the secretary-general of the National Economic and Social Development Board, has stated that Thailand’s recovery is still a relatively mild one. Support from the central bank in the form of interest rate cuts – or holding to current interest rates – will be extremely important for the economy’s continued recovery.

According to the Thai Finance Minister, exports could achieve growth of 15 percent, while automotive production has already increased by 11 percent and automotive sales have had a 19.3 percent increase.

Everything under control

Overall, spending in the first quarter has improved, which has in turn aided the economic recovery, though inflation risks are still there due to higher wages, higher oil prices, and the speedy economic recovery. The Prime Minister has expressed worry about an increase to the cost of living as a result of all of this.

With the minimum wage increase to 300 baht per day, some companies, such as the factories of Hana  Microelectronics Pcl, are running into issues returning to their full production capacity. Despite this, Thailand’s economy has seen an 11 percent increase.

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